GMAC applies for status as commercial bank and begins debt swap

November 20, 2008 by · Leave a Comment
Filed under: Industry News 

GMAC has applied for status as a bank holding company so it can get access to the Treasury’s $700 billion rescue fund for the financial industry.

The lender also began an exchange offer for $38 billion of notes issued by the company and its Residential Capital LLC home lending unit to reduce outstanding debt levels, Detroit-based GMAC said today in a statement.

GMAC joins money-losing commercial lender CIT Group Inc. in trying to shore up its finances to gain bank status. That may help GMAC quell doubts about its survival after home foreclosures pressured the mortgage unit and GM’s auto sales plummeted to the worst level since 1945. GMAC may also be able to obtain U.S. government guarantees on new debt as a bank.

“If you let this many people participate, the benefit gets so diluted you haven’t done a lot of good,” said Peter Sorrentino, a senior portfolio manager at Cincinnati-based Huntington Asset Advisors. “You can’t save everybody. That’s the hard call.”

The debt restructuring is the second in five months for GMAC and ResCap as they try to stave off bankruptcy. GMAC has about $61 billion of unsecured long-term debt outstanding, according to a regulatory filing. The company has recorded total losses of $7.9 billion from mid-2007 through last quarter. Jennifer Zuccarelli, a Treasury spokeswoman, declined to comment.

Source: Bloomberg

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